401(k) Boost by 23.5%

NEW YORK (MainStreet) — While investors may not like the unknown, a new study shows maintaining a solid positive direction through even the most difficult of financial times can have significant payoffs for those planning their retirement.

The average 401(k) participant who stuck to saving consistently saw his account balances rise by an average 23.5% from 2007 through 2011, according to a joint study by the nonpartisan groups Investment Company Institute and Employee Benefit Research Institute.

Those who consistently contributed saw an average $28,000 increase in their plan, from an average of about $76,500 at the end of 2007 to more than $94,000 at the end of 2011, the institutes found. That was despite the sharp decline caused when the market tanked in 2008.

"The data confirm that, even through tough economic times, the discipline of 401(k) plans—staying the course by investing and continuing contributions — served savers well," said Paul Schott Stevens, ICI president and CEO. "Dollar-cost averaging and putting away money paycheck by paycheck have made a big difference in the bottom line for these savers."

That's not to say it's always easy.

The hit stock prices took during 2008 decreased participants' overall average balance by 34.8% from 2007 to 2008.

Nevertheless, overall average account growth after the end of 2008 to 2011 overcame that decline if participants kept contributing to their plan and didn't retreat.

"Analysis of a consistent group of 2007 to 2011 401(k) participants highlights the impact of consistent participation in 401(k) plans," said Dallas Salisbury, EBRI president and CEO. "At year-end 2011, the average account balance among consistent participants was 60 percent higher than the average account balance among all participants in the EBRI/ICI 401(k) database, and the consistent group's median balance was about two and a half times the median balance across all participants at year-end 2011."

The data showed an average annual growth rate of 5.4% between 2007 and 2011 for consistent participants, with plans reaching $94,482 by the end of 2011. That was up from a plan value of $76,534 in 2007.

The report points out that between 2007 and 2011, the Standard & Poor's 500 Total Return Index actually was down 1.6% on average per year, while the Russell 2000 Index had a compound average annual growth rate of less than 1%.

Not surprisingly, younger participants or those with smaller initial balances experienced higher percentage growth than older participants or those with larger initial balances.

The percentage change in average account balance of consistent participants in their 20s was severely affected by the size of their contributions — since most in that age range were starting with a minimal amount of money in their plans — and saw an average rate increase of 41% per year between year-end 2007 and year-end 2011.

The report also showed participants tend to concentrate on equity securities in their accounts. About three-fifths of participants' assets were invested in equities, either through equity funds, the equity portion of target date funds, the equity portion of non–target date balanced funds or company stock. The percentage of consistent participant who allocated more than 80% of their account to equities fell from 42.9% at year-end 2007 to 38.4% at year-end 2011. The percentage of consistent 401(k) participants without any allocation to equities remained unchanged at just under 12%.

The study used data from the EBRI/ICI database, which had records of 24 million 410(k) participants by the end of 2011, and records of 8.6 million consistent participants.

--Written by Chris Metinko for MainStreet

Show Comments

Back to Top